Opening Position August 2005
The retail trader will be back"... These were the words of a spokesman from Forrester Research on Cnbc one morning recently, in response to the announcement of the Ameritrade acquisition of TD Waterhouse. The reasoning behind his statement is that markets have started showing signs of recovery, which means that the retail trader will find the markets attractive again.
If you bring up a chart of any equity index, you'll see that since mid-May the equity markets have indeed been going up, as have crude oil and gold prices, which some say is a sign of strong global demand. But bond yields still remain relatively low, and that's the teaser. It is likely that we will see a slow-moving market during the summer months, which is actually typical. After all, isn't this the time when everyone is heading off to the beach? According to the volatility index, we can expect to see little volatility in the coming months, making this a good time to stay out of the markets and explore your options. So bring out all your tools, trading systems, and strategies and reacquaint yourself with all the instruments you could be trading.
In this issue of Technical Analysis of Stocks & Commodities, we have included several articles on trading options. Options are often considered to be an inexpensive and conservative method of generating income. As you will discover from Carley Garner's article "The Cash Cow" starting on page 24, this is certainly a possibility, but there's more that you can do. Those of you who trade options will know that many more variables are involved compared to trading equities or futures contracts. In Roger Ison's "Persistent Option Volatility" starting on page 14, you'll find out how to incorporate persistent volatility to forecast the future price of an option contract. But applying it does involve judgment on your part. How do you know what strategy to apply to a particular market? For that, you'll have to turn to this month's interview with Guy Cohen, author of The Bible Of Options Strategies, who knows options inside out. He can identify which strategy is best for each type of market. Read what he has to say in the interview, which starts on page 52.
Think about using the summer to step aside from the market and brush
up on those option trading strategies. When the market volatility resumes,
regardless of whether the markets are up or down, you can reenter the market
and be well prepared. Maybe the retail trader will be back after all.
Jayanthi Gopalakrishnan,
Editor
Originally published in the August 2005 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2005, Technical Analysis, Inc.
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